Payroll basics for small businesses
Running payroll means paying people correctly and on time, and sending the right taxes and forms to the right agencies.
Updated October 30, 2026.
Before your first payroll
- Get an Employer Identification Number (EIN) from the IRS.
- Register with your state for withholding and unemployment tax accounts.
- Have each employee complete Form W-4 (federal withholding), Form I-9 (work eligibility) and any state withholding form.
- Report new hires to your state’s new-hire registry.
- Pick a pay schedule: weekly, every two weeks, twice a month or monthly.
Each payday
- Calculate gross pay, then withhold federal income tax, the employee’s Social Security (6.2%) and Medicare (1.45%) taxes, and any state and local taxes.
- Subtract benefit deductions and pay the net amount.
- Set aside your employer share of Social Security and Medicare.
Deposits and filings
- Tax deposits: monthly or semiweekly, depending on your total tax liability; the IRS tells you which schedule applies.
- Form 941: quarterly federal payroll tax return.
- Form 940: annual federal unemployment (FUTA) return.
- W-2s: to employees and the Social Security Administration by January 31.
Frequently asked questions
What payroll taxes does an employer pay?
The employer’s share of Social Security (6.2%) and Medicare (1.45%), federal unemployment tax (FUTA), and state unemployment tax. Employers also withhold the employee’s share of Social Security and Medicare plus income tax from each paycheck.
When are W-2s due?
Employers must give employees their Forms W-2 and file them with the Social Security Administration by January 31 following the tax year.
Do I need payroll software?
Not legally, but payroll software or a payroll service calculates withholding, files the returns and makes tax deposits on schedule, which avoids most payroll penalties.